China's Lenovo looking for smartphone acquisitions

Company boosts 1st quarter profit 23% as it grows smartphone, tablet business

A man tries out a smartphone on display at a Lenovo flagship store in Beijing, China. The company says it moving into smartphones and tablets as consumers shift away from desktop computers. (Andy Wong/Associated Press)

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China-based Lenovo is looking at acquisitions in PCs and smartphones to build its share of those businesses, but CEO Yang Yuanqing declined to say whether the company has any interest in BlackBerry, the Canadian smartphone maker that put itself up for sale earlier this week.

The revelation comes as Lenovo orchestrates a shift in its core business, announcing today that its sales of smartphones and tablets had outstripped its PC business in the fiscal first quarter.

"We actually sold more smartphones and tablets than PCs in this quarter for the first time ever," said CFO Wong Wai Ming in a conference call with reporters.

Though the personal computer market is ailing, Lenovo has been able to count on strong sales in China to keep revenues strong. At the same time, it is innovating with smartphones and tablets.

Lenovo has become the world’s largest PC maker, overtaking HP during the first quarter, according to research firms Gartner and IDC. It is among the top five largest suppliers of smartphones, along with Apple and Samsung, according to analysts.

The company, which has headquarters in Beijing and Morrisville, North Carolina, had considered buying part of IBM’s PC business earlier this year, but talks fell through. It also expressed interest in BlackBerry earlier this year, but it is not known if it explored options with the Waterloo, Ont. company.

Yang said in a conference call with analysts that Lenovo is looking for smartphone and PC acquisitions, as it builds its market share in the PC and smartphone markets. But he declined to say whether he had interest in either IBM or BlackBerry.

"Lenovo has come close a couple times already this year to a big acquisition," Stephen Yang, a Hong Kong-based analyst with Sun Hung Kai Financial Ltd., told Bloomberg.

Strong profits

Lenovo's net profit in its first quarter ending in June reached $174 million US, up 23 per cent from $141 million in the same period a year ago. Its revenue was $8.8 billion, a year-over-year increase of 10 per cent.

Smartphone shipments by Lenovo have more than doubled since last year to 11.4 million units for the quarter, the company said today. Most of its sales are in China, Lenovo where receives 42 per cent of its revenue.

The company has also started selling the devices in southeast Asia, Russia and India and has plans to bring its smartphones to North America and Europe. Lenovo’s combined sales of smartphones and tablets in the quarter totaled $1.2 billion US.

The high end of the smartphone business is dominated by Apple and Samsung Electronics, but that market is showing signs of saturation, leaving more room for growth among makers of less expensive handsets, including Lenovo.

Shift to cheaper phones

"The recent change in the market favours Lenovo and our business model," Lenovo's Yang said in a conference call with analysts. "The market is shifting from the premium part to the mainstream. It is shifting from the mature markets to the emerging markets."

Lenovo is also developing a next generation of its IdeaPad Yoga, a convertible PC that can be turned into a tablet, and a new "multi-mode" tablet. Its tablet sales tripled worldwide compared with a year ago.

Like the top five PC vendors worldwide, Lenovo saw a decline in shipments, but by a modest 1.4 per cent.

"I believe the PC is a more powerful, multi-function device, people still need this product," Yang said. "It's still a $200-billion market industry."